Morgans Hotel Group Receives $75 Million Investment from Yucaipa to Fuel Future Growth
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Morgans Hotel Group Receives $75 Million Investment from Yucaipa to Fuel Future Growth
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-10-16
Announces Appointment of Marc Gordon as President
Morgans Hotel Group Co. (Nasdaq: MHGC) (“MHG”) today announced that an affiliate of The Yucaipa Companies, LLC (“Yucaipa”) has invested $75 million in MHG. The capital infusion will significantly strengthen the company’s balance sheet and provide long-term financing for growth. Combined with the recent amendment to MHG’s credit line, the company has added approximately $200 million of liquidity in the last two months.
The Yucaipa Companies, founded by Ronald Burkle, is a premier investment firm that has an established track record of fostering economic value through the growth and responsible development of companies.
The company also announced that Marc Gordon, current Chief Investment Officer for MHG, has been promoted to President of MHG by the board of directors. In connection with the investment, Michael Gross has been appointed to the board of directors of MHG, and MHG directors Deepak Chopra and David Moore have resigned from their positions on the board. Mr. Gross has worked closely with Ronald Burkle since 2004 and has focused on consumer, real estate and lodging companies for 11 years.
Under the terms of the transaction, MHG has issued to Yucaipa $75 million of Preferred Securities. The Preferred Securities have an 8% dividend rate for the first five years; a 10% rate for years 6-7; and for any remaining balances, a 20% rate for years thereafter. MHG has the option to accrue any and all dividend payments. MHG also has the option to redeem the Preferred Securities at any time without any pre-payment penalty.
In addition, MHG issued to Yucaipa a warrant to purchase 12.5 million shares of the company’s common stock at an exercise price of $6.00, subject to certain anti-dilution adjustments, and exercisable utilizing a cashless exercise method only, resulting in a net share issuance. The exercise price reflects a 19% premium on the average closing price of MHG’s common stock for the last 60 trading days. As a part of the cashless exercise method, the number of shares issuable on exercise will depend on the price of the common stock at that time. Based on the shares of MHG’s common stock outstanding today, the maximum number of shares issuable under this warrant would never represent more than 29.99% of MHG’s outstanding shares. The warrant will expire in 7.5 years.
David Hamamoto, Chairman of the Board of Morgans Hotel Group, said, “We are pleased that Yucaipa and Ron Burkle, with their impressive track record of successful investments, have decided to make such a significant investment in Morgans. We view this investment, which was done after substantial due diligence, as a vote of confidence in both our business and our long-term growth prospects. The investment, along with the company’s other restructuring efforts, will further strengthen our balance sheet, allowing us to prudently capitalize on growth opportunities ahead.
”We wish to thank Deepak Chopra and David Moore for their valuable service to the Board,” Mr. Hamamoto added.
Ronald Burkle, Chairman of Yucaipa, said, “Morgans has some of the most exciting brands in the industry and a terrific platform for future growth. We are excited to partner with the company as it continues to expand its brand portfolio. We look forward to working with Morgans’ talented management team to drive long-term growth, profitability and value for all shareholders.”
MHG and Yucaipa also announced that they intend to raise a real estate opportunity fund to invest in new MHG hotel projects. Properties owned by the fund are to be managed by MHG under long-term management agreements. Yucaipa has agreed to commit capital towards the fund and raise the remaining money through a fund offering. In connection with the formation of the fund, Yucaipa will be entitled to receive additional warrant shares if the fund meets certain capital commitment and investment thresholds.
Fred Kleisner, Chief Executive Officer of MHG, said, “This transaction is consistent with our strategy of pursuing compelling growth opportunities that focus on high-margin management fees and I am confident that this partnership will benefit all of Morgans’ key stakeholders. I also want to congratulate Marc Gordon, on his promotion today to President of Morgans Hotel Group. Marc has been an instrumental member of the Morgans’ team for twelve years and I know our company will continue to strengthen and grow under our combined guidance and leadership.”
Marc Gordon, President of MHG, continued, “I am honored by the confidence that has been placed in me and look forward to working closely with David, Fred and the entire management team as we prudently capitalize on opportunities ahead. We appreciate the support of our new partner Yucaipa for providing us the flexibility to repay the capital as and when most beneficial for Morgans. These additional dollars and friendly terms should help us see the company through the remainder of the economic downturn and allow us to position Morgans to capitalize on the ultimate recovery.”
The transaction has been approved by MHG’s board of directors. In accordance with NASDAQ rules, the potential warrant issuance in excess of 19.99% of MHG’s shares is subject to stockholder approval.
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